Linqto customers sue ex-CEO after fintech company's bankruptcy
Two customers of investment platform Linqto sued the company’s ex-CEO on Wednesday, a day after the company filed for bankruptcy, alleging that they were duped into buying into an investment fund that promised access to private companies’ equity.
The customers claim that Linqto's former CEO William Sarris misled investors who sought to buy stakes in hot tech startups, by leading them to believe they were acquiring direct stakes in hard-to-access private companies like the blockchain company Ripple. He capitalized on customers' "fear of missing out," for example, to hype up demand for Ripple shares, according to their lawsuit filed in federal court in Manhattan.
The two plaintiffs seek to represent a class of customers who purchased securities from Linqto.
Plaintiffs' attorney John Deaton said he supports Linqto's stated goal of "democratizing" investment in private companies, but the company broke the rules and led investors astray.
"Unfortunately, Bill Sarris has not only not fulfilled that mission, he has damaged it," Deaton said. "People believed they were buying shares of Ripple, shares of SpaceX, but that's not what they were buying."
Linqto is under investigation by the U.S. Securities and Exchange Commission, and it says it was unable to facilitate its customers’ investment in private companies as it had promised. It filed for bankruptcy protection in Texas on Tuesday, citing its historical failure to follow U.S. laws governing the sale and marketing of private equity stakes.
Separate from the customer lawsuit, Linqto also faces opposition from its own shareholders as it attempts to restructure in bankruptcy. Sapien Group, an investment fund that owns Linqto shares, said Tuesday that it had organized a majority coalition of shareholders to participate in Linqto’s bankruptcy and possibly challenge the company’s decision to file for Chapter 11 protection.
Sarris resigned as CEO on Jan. 2 and his employment with Linqto was terminated on March 10, but he remains a member of the company's board, according to bankruptcy court filings.
Sarris could not immediately be reached for comment. Linqto did not immediately respond to a request for comment.
Linqto began marketing its private-investment platform in 2020, telling customers that it would allow them to directly invest in private-market startups and pre-IPO companies.
It has acquired more than $500 million in equity shares of over 100 private companies, including Ripple, and it purported to allow its customers to purchase stakes in those companies.
But Linqto never transferred the equity shares to its customers, and doing so likely would have violated both U.S. securities laws and the purchase agreements by which Linqto acquired the companies’ shares, according to Linqto’s bankruptcy court filings.
U.S. securities laws usually prevent private companies from selling their equity to non-professional investors, and companies that sell their shares publicly are subject to stricter disclosure rules.
The lawsuit filed Wednesday does not named Linqto as a defendant, and it is proceeding separately from the company's bankruptcy.
In addition to the SEC investigation, Linqto is also being investigated by the Financial Industry Regulatory Authority, Wall Street's self-regulator. The company’s chief revenue officer, Gene Zawrotny, also sued the company in California court in October, alleging that he was improperly terminated after he raised concerns about the company’s compliance with securities laws.
Linqto said Monday that it would try to use its bankruptcy to restructure into a “profitable, law-abiding organization,” but it acknowledged "potentially insurmountable operating challenges."
The customers' lawsuit is Maxwell v. Sarris, U.S. District Court for the Southern District of New York, No. 25-5643.
For the Linqto customers: John Deaton of the Deaton Law Firm
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